Studies examining former market calls (like checking the rear view mirror) of experts suggest that the ability of ‘gurus’ to predict markets is less than 50%. Slightly worse than flipping a coin. In my book I pick on a couple of very public personalities that made some really bad forecasts and investment decisions.

Is it really that difficult to time markets? I don’t believe that it is! Gurus have spent a great deal of money and energy building a following. After all, it’s impossible to attain ‘guru’ status unless one is popular. Popularity is thus far more important than accuracy. If popular, there’s really no compelling reason to say what your audience just doesn’t want to hear. Should a guru say something profoundly different from what you think it might compromise his/her popularity. Frankly I’m surprised celebrities even get it right half the time.

Successful money managers make bets nobody else wants to make. They won’t be popular. I recall asking to go on a business television show (BNN) early in the decade (when the resource sector was the black sheep of stock markets) to talk about the approaching commodity boom. They wouldn’t give the time of day. Towards the end of the boom, you’d think there was no news but resource news watching the same show.

Smart bets seem risky to be sure, but mathematically they are usually the least risky bets to make. And don’t be fooled – trying desperately to avoid risk at all cost is itself a massively risky bet.

If we’re do for a recession, the fiscal crisis will not be the catalyst. In all likelihood a slowdown in the recovery is underway (witness the UK’s economy) and has been priced into the market already as suggested by experts, but waiting for proof can only mean forgone opportunity. As I’ve written about repeatedly, the US economy continues to improve despite speed bumps along the way. China looks ready to get in step with the rest of the world and stimulate.”

Since I wrote that, the S&P 500 has risen more than 7%…..in a couple of months. All of a sudden, everyone believes now what was evident months ago! Too much, too soon?

US 2-year Treasuries are yielding 0.25% and an index of junkier corporate bonds (annual) yields roughly 6%. The market’s abrupt bounce could indeed be overzealous. This from Bloomberg:

The Fed’s total assets climbed by $48 billion in the past week to $3.01 trillion as of Jan. 23, according to a release from the central bank yesterday in Washington. The announcement came as the Standard & Poor’s 500 Index closed at the highest level since December 2007.

What I expected to happen has happened but much too quickly. The talking heads on CNBC’s Squawk Box have flipped from bearish to unbearably bullish overnight – to avoid becoming unpopular maybe? The Fed cannot keep buying expensive bonds indefinitely, but it is universally expected that they will. Will investors really continue to be willing to hold/buy Spanish bonds yielding 5% when the country’s unemployment rate is 26%? My guess is a higher rate will be demanded to even consider buying them…soon enough. Rates will rise and be the catalyst for a correction.

Although I still believe we’re in a bonafide growth cycle that will last several years, the ride will be bumpy. Take profits and hop back into the market when it corrects….and it will. Do you disagree? That’s why I’m not popular!

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About Mal Spooner

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He recently authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.

One Response to Gurus cannot time markets? I’ll tell you who can!

Interesting for sure, but in terms of actionable ideas would it not be a more direct approach to short Spanish (2 yr sub 4%) and Italy (sub 1.5%) than to rinse your developed market equities? Catalyst the repayment of LTRO whereas the US QE punchbowl likely here until 6.5% print on unemployment. JCG

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